Sciele Pharma Inc. Q2 2008 Earnings Call Transcript

| About: Sciele Pharma (SCRX)

Sciele Pharma Inc. (SCRX) Q2 2008 Earnings Call July 30, 2008 4:30 PM ET

Executives

Joe Schepers - Director of IR

Ed Schutter - President and COO

Darrell Borne - EVP, CFO, Secretary and Treasurer

Patrick Fourteau - CEO

Larry Dillaha - EVP and CMO

Analysts

Donald Ellis - Thomas Weisel Partners

Annabel Samimy - UBS

Scott Hirsch - Credit Suisse

David Buck - Buckingham Research

David Steinberg - Deutsche Bank

Ken Trbovich - RBC Capital Market

Operator

Good day and welcome everyone to today's conference call, Sciele Pharma. Today's call is being recorded. At this time, for opening remarks and introductions I would like to turn the program over to the Director of Investor Relations, Mr. Joe Schepers. Please go ahead sir.

Joseph Schepers - Director of Investor Relations

Thank you. Good afternoon and welcome to Sciele Pharma’s second quarter 2008 Earnings Call. I am Joe Schepers, Sciele’s Director of Investor Relations. Our speakers on the call today are Ed Schutter, President and Chief Operating Officer; and Darrell Borne, Chief Financial Officer; Patrick Fourteau, Chief Executive Officer; and Larry Dillaha, Chief Medical Officer are also on the call to answer any questions you may have during the Q&A session.

Please note that this presentation contains forward-looking statements which are subject to risks, uncertainties and other factors beyond the company’s control that may cause actual results, performance or achievements to differ materially from those anticipated in any forward-looking statements. These risks, uncertainties and other factors included, but are not limited to those described under ''Business Risk Factors" of our Annual Report on Form 10-K for the year ended December 31, 2007, and our Quarterly Reports on Form 10-Q as filed with the SEC. The company does not undertake to update forward-looking statements to reflect future events or circumstances.

I will mow turn over the call to Ed Schutter.

Ed Schutter

Thank you Joe. In the second quarter of 2008 we were pleased to once again report strong financial results. Our growth in the second quarter of '08 was primarily driven by our new products launched in the second half of '07 and the first half of '08, which include Prenate DHA, Prandin, Fenoglide, Orapred ODT, Allegra or suspension in ODT, Twinject and Methylin. These seven new products accounted for approximately 20% of revenues for the company in the second quarter of 2008, and we expect their percentage of total company sales to continue to grow in the future.

Launching new products and diversifying our product portfolio are key elements of our growth strategy. We are also focused on maintaining revenues of several key products, which include the New Sular GEOMATRIX formulation, Fortamet, and Nitrolingual Pumpspray.

To add to our sales growth, we expect to introduce four additional products during the next six months. These include a new formulation of Prenate, PrandiMet for Type II diabetes, and upon FDA approval our new treatment for head lice and CloniBID for hypertension. We have built a strong product portfolio, which is based on a diversified and solid foundation in four therapeutic areas; Cardiovascular, Diabetes, Women's Health, and Pediatrics.

To begin with, I will provide you an update on the successful launch results of new Sular GEOMATRIX. In late March, we began shipping, promoting and sampling new Sular. As of July 28, 2008, over 80% of Sular new prescriptions were dispensed for the new strains available only in the GEOMATRIX formulation. This is according to IMS NPA daily prescription data.

We are very pleased with our sales and marketing teams, whose outstanding efforts have made this possible. As you may know, Mylan has now listed nisoldipine 20, 30 and 40 milligram dosage strengths, with First Databank, MediSpan and Gold Standard. Since over 80% of new prescriptions are now written for the new strains of Sular GEOMATRIX, and the most common starting dose for new Sular patients was the 10 milligram, which we believe will not be available for Mylan. We expect physicians to continue prescribing the new strengths available only as Sular GEOMATRIX in the future.

Later in the call, I will provide you an update on the products in our pipeline. First, I would like to review the performance of our cardiovascular, diabetes, women’s health and pediatrics products. Beginning with cardiovascular diabetes; net revenues for the company's Cardiovascular and Diabetes products decreased 4% to $67.5 million, excluding charges related to Sular returns, which were $8.1 million for the three months ended June 30, 2008, compared to $70.3 million for the three months ended June 30 '07. Cardiovascular and Diabetes products represented 58% of total revenues in the second quarter of '08.

As I just mentioned, over 80% of new prescriptions were dispensed for the new Sular GEOMATRIX formulation, and approximately 70% of total prescriptions were dispensed for new Sular according to IMS NPA daily data again as of July 28, 2008. Since we will continue to promote and sample Sular exclusively in the new GEOMATRIX dosage strengths, we expect to be able to maintain this level of the business moving forward. It is also important to note that 34% of old Sular prescriptions were written for the 10 milligram starting dose, which is not listed as a dose available for Mylan in the third party companions or with wholesalers.

Our fenofibrate familiar of products, Triglide and Fenoglide total prescriptions increased 10% in the second quarter of '08 when compared to the second quarter of '07 again according to IMS Health NPA data. The new prescription market share of the meglitinide class of products for Prandin increased to 56.4% in the second quarter of ’08 compared to 52.8% in the second quarter of ’07. Prandin's dollarized total prescriptions increased 13% in the second quarter of '08 again over the same period of '07 according IMS Health NPA data.

Sciele began marketing Prandin in the first quarter of 2008. PrandinMet, which is a combination of repaglinide and metformin for the treatment of type II diabetes was approved by the FDA in June 2008. We are targeting to launch this product in the fourth quarter of this year.

Our 225 cardiovascular sales were focused primarily on the new Sular GEOMATRIX launch in the first seven months of this year. Due to this focus we did experience a mild loss of sales momentum with Nitrolingual Pumpspray and our fenofibrate family of products.

With the new Sular conversion nearly complete we will reestablish our marketing efforts and sales focus on Nitrolingual Pumpspray and the fenofibrate family of products during the remainder of the year. We will also be introducing a new package of Nitrolingual Pumpspray in the third quarter of 2008, which combines a 60 ml and 200 milliliter doses in one package under one NDC, providing patients the convenience of a home and travel size in one prescription.

Turning to our Women's Health business net revenues from this branch of business increased 20% to $23.9 million for the three months ended June 30th, 2008 compared to $19.8 million for the same three months last year. Women’s Health products represented 23% of total revenues for the second quarter of ’08.

The Prenate family of products continue to grow. Total prescriptions increasing by 11% in the second quarter of '08 again as compared to the second quarter of '07. Zovirax sales also contributed to our growth in the women's health area. Zovirax dollarized total prescriptions increased 9% in the second quarter of '08 compared to the same quarter of '07 again according to IMS Health NPA data. Our women health's sales force of 175 sales reps is focused primarily on the Prenate family of products and Zovirax.

Now turning to Pediatric and other products. Net revenues from the company's pediatric and other products increased to $19.9 million for the three months ended June 30th, '08 as compared to $5.3 million for the three months ended June 30th, '07. Pediatric and other products represented 19% of the company sales in the second quarter of '08. This significant growth in pediatrics is due primarily to the products acquired from Alliant Pharmaceuticals last year.

Sciele continues to gain market share for Allegra Oral Suspension and Orapred ODT. Allegra OS and ODT new prescription market share increased to 34% at the end of the second quarter of '08 compared to 5.1% at the end of the second quarter of '07 according to IMS Health NPA data. New prescriptions for Orapred ODT increased 29% in the second quarter of '08 versus the second quarter of '07. Again according to IMS Health NPA data.

We expect all of the promoted pediatric products to continue to grow, including our new prescription lice product when approved adding significantly to the overall growth of the company. In the second quarter of '08 the company added approximately 43 sales representatives to the pediatric sales team, expanding to 144 pediatric sales representatives. We also relaunched Twinject with the expanded sales team in July 2008, with new marketing messaging, and promotional resources. We expect to see a positive impact on sales trends with this brand later in the year.

Now, I would like to turn your attention to our product pipeline. The company's product pipeline now includes seven products; two are under review at the FDA, four are currently in Phase III trials, and one is in Phase II. Sciele has launched five new products in the first seven months of 2008; Prandin, the new Sular GEOMATRIX formulation, Fenoglide, Allegra ODT, and Twinject. Sciele expects to launch four new products during the next six months; a new formulation of Prenate, PrandiMet, and upon FDA approval, the new treatment for head lice and CloniBID.

As you may know, the FDA issued an approvable letter on July 15, for the Summers Laboratories product to treat head lice. Sciele and Summers Labs are in discussions and working closely with the FDA to provide the additional information that was requested. Upon FDA approval, this product will be the first prescription medication that kills head lice by asphyxiation instead of utilizing a neurotoxic pesticide.

CloniBID, for the treatment of hypertension is under review at the FDA with a Prescription Drug User Fee Act, or PDUFA date of December 19, 2008. Upon FDA approval, Sciele expects to launch this product in early '09. CloniBID and Clonicel are both, 12-hour sustained-release formulations of clonidine hydrochloride.

Clonicel has been studied for the treatment of ADHD, attention deficit disorder. The patient enrollment for the Phase III trials using Clonicel as a monotherapy for ADHD was completed in June 2008. The company expects to have the Phase III monotherapy clinical results in the third quarter of this year. We expect the Phase III clinical trials for Clonicel in combination with stimulants would be completed in the second half of '08.

In July 2008, Sciele completed a Phase III safety trial utilizing a liquid formulation of glycopyrrolate to treat chronic, moderate-to-severe drooling in pediatric patients. This condition often results from cerebral palsy, as well as other neurological disorders. The company expects to file an NDA in the third quarter of 2008 through this product. Glycopyrrolate received an orphan drug designation from the FDA, which provides seven years of marketing exclusivity after FDA approval.

In the second quarter of 2008, the company completed a Phase III efficacy clinical trial using pravastatin and fenofibrate to treat mixed dyslipidemia. The Phase III clinical trials comparing the efficacy of the combination of pravastatin and fenofibrate versus pravastatin or fenofibrate alone. The company expects to announce the efficacy data from this study in the second half of 2008.

In June 2008, Plethora Solutions completed the European Phase III clinical trial patient enrollment for PSD502 for the treatment of premature ejaculation. The US Phase III trials is ongoing and is expected to be completed in the second half of this year. PSD502 is a unique, proprietary, rapidly absorbed formulation of two, well-established local anesthetics, lidocaine and prilocaine, dispensed in a metered dose spray.

On July 31st, 2008 Sciele signed an exclusive agreement with Addrenex Pharmaceuticals, to develop and market ADX415, a novel patented, centrally-acting alpha adrenergic receptor agonist, specific to Alpha-2 receptors, for the treatment of hypertension. Under the terms of the agreement, Sciele will have the worldwide marketing rights for ADX415. We expect to begin Phase II clinical trials for this product in the second half of 2008.

To summarize we are very pleased with the commercial launch of Sular GEOMATRIX and I want to congratulate all of our employees who have worked diligently to make this a success. Looking ahead our growth drivers will be our pediatric products Prenate DHA, Type II diabetes and fenofibrate products as well as all of our upcoming product launches.

We have successfully diversified our product portfolio and product pipeline. Additionally we were very pleased to enter in to an agreement with Addrenex to add ADX415 our first Phase II and new chemical entity development product to our pipeline. Our business development team has been very successful to-date in in-licensing and acquiring products to build our organization for the future. They will remain very active in this area and we continue to have ongoing discussions with numerous potential partners.

Now I would like to turn the call over to Darrell to discuss the financial highlights in more detail.

Darrell Borne

Thank you. As Ed discussed this has been another solid quarter for Sciele Pharma. Net revenues for the second quarter of 2008 increased 17% to $11.3 million excluding $8.1 million in charges for old Sular returns related to the new Sular conversion. From $95.4 million in the second quarter of 2007. Diluted earning per share for the second quarter of 2008 were $0.46 excluding $0.11 of charges for Sular returns and validations, Twinject acquired inventory and gain on disposal of Zebutal. Compared with an EPS of $0.38 excluding $0.09 of non-cash expense related to redemption of the contingent convertible notes for the second quarter of 2007.

Earnings before interest, taxes, depreciation and amortization and stock compensation expense or EBITDAS, a non-GAAP measure, were $25.3 million which includes the $8.1 million charge for old Sular returns and $2.1 million for Sular validations in Twinject acquired inventory in the second quarter of 2008. This is compared with $28.1 million in the second quarter of 2007. The company believes that EBITDAS is a meaningful non-GAAP financial measure as an earnings derived indicator that approximates operating cash flow. EBITDAS as defined by the company may not be comparable to similar measures reported by other companies.

Cash flow per share also a non-GAAP measure was $0.60 per share for the second quarter of 2008 compared with $0.53 per share for the second quarter of 2007. We defined cash flow per share as diluted net income per share before stock-based compensation expenses net of taxes, depreciation and amortization net of taxes, and impairment on equity investments.

The company believes that cash flow per share is a meaningful non-GAAP measure of approximate cash flow on an EPS basis, which is utilized by the financial committee to evaluate companies. Cash flow per share may not be comparable to similar measures reported by other companies.

In the second quarter of 2008, gross margins as a percentage of sales were 86%, compared to 87% in the second quarter of 2007. The gross margin in the second quarter of 2008 was adversely affected by the charges related to Sular, old Sular returns and validations, and Twinject acquired inventory. As a result, the majority of the new Sular GEOMATRIX product was unavailable until the second half of Q2 '08, and thus that has increased the company's DSOs for the quarter.

Selling, general and administrative expenses increased 18% to $57.2 million in the second quarter of 2008, compared with $48.5 million in the second quarter of 2007. The increase in selling, general and administrative expenses was primarily due to the creation of the company's pediatric sales force in June 2007, and further expansion in the second quarter of 2008, higher commissions and royalties due to increased sales, and cost associated with the launches of the new Sular GEOMATRIX, Prandin, and Fenoglide.

Research and development expenses were $8.8 million for the second quarter of 2008, compared to $8.1 million in the second quarter of 2007. Research and development expenses were primarily related to the pivotal clinical trials of the pravastatin/fenofibrate combination for the treatment of mixed dyslipidemia and glycopyrrolate for the treatment of chronic, moderate-to-severe drooling in pediatric patients.

Depreciation and amortization increased to $8.9 million in the second quarter of 2008 from $6.4 million in the second quarter of 2007. This increase was primarily due to the acquisition of Alliant Pharmaceuticals in June 2007.

As of June 30, 2008, the company had $101.6 million in cash, cash equivalents and marketable securities. During the second quarter of 2008, the company repurchased $75 million, or approximately 3.5 million shares, of its common stock through its share repurchase program. Year-to-date in 2008, the company repurchased $85 million, or approximately 4.1 million shares of its common stock. The company had 31.6 million shares outstanding, as of June 30, 2008. The company may repurchase up to an additional $25 million under its current $100 million share repurchase program.

Turning our attention to guidance for the full year of 2008. Sciele is updating its full year revenue and EPS guidance for 2008 on a US GAAP basis, which includes previously announced charges, the gain on disposal of Zebutal, all approved products, and all previous share repurchases. The company anticipates that revenues will be within the range of $437 million to $457 million and diluted earnings per share will be within a range of $1.90 to $2.02 per share.

That concludes our prepared remarks. Operator we are now ready to take questions.

Question-and-Answer Session

Operator

Thank you. (Operators Instructions). Our first question this afternoon will come from Donald Ellis with Thomas Weisel Partners.

Donald Ellis - Thomas Weisel Partners

Thank you and good afternoon guys. Darrell I just wanted to kind of reconcile the old versus new guidance and the way I'd like to do is do that and net out the impact of the Sular buyback, the inventory. So your old earnings guidance was $1.99 to $2.11 correct?

Darrell Borne

Correct.

Donald Ellis - Thomas Weisel Partners

And the new guidance if you were able to net that out and add $0.11 back is $2.01 to $2.13. Is that correct?

Darrell Borne

The new guidance is $1.90 to $2.02 per share. The thing I was trying to do is I want to make sure that everybody is clear that the new guidance is full end. Its on a fully diluted basis with all charges for Sular and it also has the returns for Sular and the revenues as well.

Donald Ellis - Thomas Weisel Partners

So the returns and all that added to about $0.11 is that correct?

Darrell Borne

That’s correct.

Donald Ellis - Thomas Weisel Partners

Okay. So netting that out you're actually increasing earnings guidance by about $0.02, if you didn’t have that $0.11 charge.

Darrell Borne

Correct.

Donald Ellis - Thomas Weisel Partners

Now on the revenue side you have about $10.2 million charge and you are lowering that lower and the revenue by $10 million, but you are lowering the upper end of the revenue guidance by $13 million. Is there something else in there that's making up the extra $3 million?

Darrell Borne

As we go forward as you can see we are getting closer to the end of the year and we're looking at the products on an ongoing basis. So we've tightened up the range a little bit on the top end, but we've actually increased a little bit on the bottom end.

Donald Ellis - Thomas Weisel Partners

Okay. And next question is regarding gross margin. Are you able to quantify a little bit how much your gross margin was impacted in the quarter due to the buy back?

Darrell Borne

The gross margin won't have any impact, but we did have a $2 million charge for Sular validation and Twinject inventories.

Donald Ellis - Thomas Weisel Partners

The last question is regarding the head lice product. Do you have any color as far as timing, how long you expect it will take for you guys to submit a response and then once that response is submitted how much time does the FDA have to get back to you?

Ed Schutter

Dan its Ed. I will address that and Larry as he might be able add a little more flavor. The team is very actively putting together the information that was requested to answer in the very near future, can't give you a specific timeline but its not going to be long. As far as the FDA is concerned and how long that might take to get a response to that, I'll leave that to Larry to respond to.

Larry Dillaha

Generally speaking what they consider our response complete, I believe the latest information they have about two months to respond to that. So once we get our response complete to them they will take about 60 days or so to turn that around.

Donald Ellis - Thomas Weisel Partners

Great, that's helpful thanks a lot.

Operator

Thank you and our next question will come from Annabel Samimy with UBS.

Annabel Samimy - UBS

Hi thanks for taking my call. Just on the same note regarding Twinject, can you just confirm that you don't require any preclinical, clinical, toxicology studies or anything related to that to respond to the FDA?

Ed Schutter

You are talking about the lice product or Twinject.

Annabel Samimy - UBS

I am sorry yes lice, no not Twinject.

Ed Schutter

You meant the lice product, right?

Annabel Samimy - UBS

I did mean the lice product.

Larry Dillaha

One more time Annabel, sorry.

Annabel Samimy - UBS

Can you just confirm that you don't need any preclinical, clinical or toxicology in the response to the FDA?

Larry Dillaha

Yeah the FDA's questions don't ask for any other clinical data per se.

Annabel Samimy - UBS

Preclinical and toxic as well?

Larry Dillaha

Correct.

Annabel Samimy - UBS

Okay. And with LARx delayed a bit, what specific products are you going to be driving the most in your pediatric franchise?

Larry Dillaha

Well, we're using it as an opportunity to relay, this is the summer season, is the seasonality of Twinject, and Twinject did lose momentum as you probably have noticed, with their sales force stopping promoting it sometime last year. Now it's really not getting marketing mate, we had to create totally new marketing materials and campaign, which we just really re-launched with the sales team in July just a few weeks ago. So the primary focus until the allergy season now will be Twinject.

Annabel Samimy - UBS

Okay. Sorry, this a slow season for Twinject, or this is when it should start ramping up?

Larry Dillaha

No, this is, the summer is the peak season of anaphylaxis, bee stings and stuff.

Annabel Samimy - UBS

Okay. And then turning to Sular. The 10 milligram clearly is not out there by Mylan, but what kind of comfort can you get that there's no additional ANDA's out there? And on that some topic, are you planning any strategies to sort of counter the generic entry?

Ed Schutter

Well, the only thing that I can comment on in that regard is that we have been working diligently to ensure that all prescriptions are written for the new strains. And as you know, with the information that is available in our industry, we can very well target and know exactly who's writing new strains and who is not. The majority of the new prescriptions are new strains as you are aware, and we just need to make sure that we, instead of 80% we move it up to 100% of new prescriptions being written for the new strains.

The other thing I should add is that patients on average on hypertensive products cycle through about every nine months. So if there is a short-term leakage, once that cycling through is done, we should be getting -- new patients will be placed on the new doses, because we're going to be the only ones out there sampling and promoting obviously for those strains.

Annabel Samimy - UBS

Okay. And do you feel that you might have to, I guess a big effort this quarter was placed on Sular to the detriment upon your other products. Do you feel that you're just going to have to keep on driving Sular as the generic come out, which would take Sciele, not allow you to focus as much on the nitrolingual or fenofibrate?

Ed Schutter

No, I think no. We're not changing our strategy. What we've done, is we had dropped a lot of our targets for our other products so that we could have a very intensified frequency with the Sular prescribes. We've just about finished with that job, we'll still continue to call on all of those prescribes, but now we will move on to broader base of physicians, some of the NOPs prescribes that we had to drop previously will be back in those offices in the next few weeks.

Annabel Samimy - UBS

Okay, great. And just one last question if I may. What kind of -- you are not really giving 2009 guidance, but do you see R&D and SG&A as something that's going to have to be reined back to a certain degree going forward, or do you feel pretty comfortable with the levels that you are right now? And the goals that you had of that 8% for R&D?

Darrell Borne

Annabel, this is Darrel. What you find is that going into, we are not going to be giving guidance, obviously for 2009 at this point in time. But clearly R&D has been at the 8% level, we'll be sticking to that primarily going forward. You should be seeing more leverage in the future off of our SG&A. So we’re going to be holding the line on the SG&A expenses, so you would not be seeing those increasing.

Annabel Samimy - UBS

Okay great thank you.

Darrell Borne

The other thing just as a point of reference. As everyone knows royalties are in SG&A, so as the revenues grow of course you are going to have a growth in royalties.

Annabel Samimy - UBS

Okay great thanks a lot.

Darrell Borne

Okay.

Ed Schutter

Thank you.

Operator

And your next question comes from Scott Hirsch with Credit Suisse.

Scott Hirsch - Credit Suisse

Real quickly on Sular. Is there any inventory that's left out there that you guys are concerned about whether the new or the old that you’re going to try write-down or bring back in the near-term.

Darrell Borne

No Scott its all done when you have all the final returns that we have accrued for in this quarter.

Scott Hirsch - Credit Suisse

Alright and then with respect to the share count. I just wanted to confirm you guys said its 31.6 million shares by the end of June?

Darrell Borne

That’s outstanding shares and then you have approximately 2 million shares as restricted shares and options that add to the dilutive counts.

Scott Hirsch - Credit Suisse

Okay.

Darrell Borne

So share counts use about 33.6, 33.7 million going forward.

Scott Hirsch - Credit Suisse

6 or 7 and then it’s roughly another 1 million or 1.5 million shares of the $25 million that's left to go.

Darrell Borne

Correct.

Scott Hirsch - Credit Suisse

And you still expect to do that over the second half.

Darrell Borne

We have authorization to do that up until the August time -- are used from April 2009 and as you saw we were active in the second quarter we're very opportunistic about our share repurchases.

Scott Hirsch - Credit Suisse

Is there any reason you would not be buying back shares here?

Darrell Borne

We are very opportunistic and of course we’ll take the opportunity when we can.

Scott Hirsch - Credit Suisse

With respect to the Nitrolingual repackaging, can you give us a sense of what happens with pricing here that you have both the home version, now the travel version its now [Rx] for the product but what happens with the pricing here?

Ed Schutter

Yeah, it will be priced fairly similar to the two but a little bit of a discount when you are getting them together. A small discount for getting the two together.

Scott Hirsch - Credit Suisse

So what do you expect that with the volumes here. Are people getting to our axis here and now this is going to cut volumes but increase price or is just volume going to stay roughly the same and just increase pricing?

Ed Schutter

Yeah, your volume will increase because now you'll be -- most prescriptions for Nitrolingual Pumpspray are new, very little refills. So actually your overall volume for those prescriptions that convert over to the dual pack you'll essentially be doubling the volume.

Scott Hirsch - Credit Suisse

All right and then with respect to the overall top line, I know you guys have been talking about the kind of diversification of the product portfolio. Can you give us any sense either percentage basis or how it goes about with what level pediatrics is going to be of the overall high whether this year or looking forward, any kind of ideas as to how much you think that represents as a percent of overall sales?

Ed Schutter

Scott as you look at outer years, I wouldn't say by the end of this year because we are obviously just launching those products. But we will continue to diversify both the pediatrics and women's health franchises and each one of those should make up approximately 25% of our revenues in the future. So half will be coming from cardiovascular and diabetes, the other half will come from women's health and pediatrics.

Scott Hirsch - Credit Suisse

Okay and then just lastly on a LARx on the head lice. So it looks, if you guys can as you said no new clinicals and no new toxic. So you can basically try to get something in next several weeks and they get a 60 or 90 day turnaround. Would you launch this thing into the end of the year, into Christmas and the Holidays or would you wait till first quarter?

Ed Schutter

Actually, we would launch it as soon as we possibly could and actually there is a spike up in seasonality with the lice products when you have the back-to-school in January after the holidays in December -- November, December. So you absolutely would want to be on the market as quickly as possible.

Scott Hirsch - Credit Suisse

Okay. And then -- and then just leverage on the sales force. Would you expect to ramp up again ahead of CloniBID here or do you think your sales force is here especially and their cardiodiabetes are kind of at the right level?

Ed Schutter

Yeah, I mean you know, if we do, it's not going to be much. We've just got the -- we're just looking at the IMS data right now, the overlap of the first glance is pretty good as you would suspect with the products that we have out there. So I don't have the complete answer to that but it's not going to be big, if there's any ramp up at all.

Scott Hirsch - Credit Suisse

Okay. Thanks very much.

Darrell Borne

Thank you.

Operator

And our next question comes from David Buck with Buckingham Research.

David Buck - Buckingham Research

Yeah hi, it's Jim Lawson for David Buck. How are you?

Darrell Borne

Hi Jim.

David Buck - Buckingham Research

How are you?

Ed Schutter

Good, thanks.

David Buck - Buckingham Research

Would you give some color on the Prandin, PrandiMet and Zovirax co-promotes and what they added to the June quarter?

Darrell Borne

If you look at the revenues, we don't break out specific product revenues. Zovirax is in a down cycle. The biggest quarters for Zovirax are first quarter and fourth quarter of the year because of the seasonality, so was the small amount of revenues. Prandin continues to be a nice growth driver as Ed had mentioned as far as dollarized TRx’s go. PrandiMet hasn't been launched yet, and as Ed had mentioned in his conference call script, he said that in the fourth quarter, we will be launching that product.

David Buck - Buckingham Research

Okay. And then also, just a follow-on to that. Were these co-promotes with those zero guidance assume for general competition in '08 and '09?

Darrell Borne

As far as the guidance goes, obviously we're concerned with what Sular has -- as Ed had mentioned, 34% of the new scripts are written for the lowest dose, and we believe that there is not going to be a entry on that products so obviously, those scripts would all go test. The other thing that’s very important also to note is that physicians start patients on the eight and half’s so as they start those patients they will try trait once they start on our strengths they are going to stay in our strengths. So as it relates to our TRx, I had also mentioned the fact that we are at 70% on the TRx basis and over 80% on NRx basis at least on the daily. We’ll continue on that line and maybe even have a little bit of uptake on that.

David Buck - Buckingham Research

Okay. I was referring to the co-promoted products and do you have any competition for that?

Darrell Borne

I mean Zovirax, I don’t think there is a clear path to get a generic to the topical, a cycle [ware] creams or ointments other than redoing the Phase III study at this pointing time. And if you've looked at the studies that GSK did backed in, they were really large studies.

Now, the FDMA change that at any time, but that’s the way it exist right now, which would make it fairly difficult. As far as PrandiMet is concerned, you know that Prandin has two patents listed in their orange book, one expires in '09 and the other one expires in '18. And there is some litigation going on right now regarding those patents, we won't know the outcome, obviously, there’ll be some kind of stay.

So we don’t necessarily expect the generic to Prandin early in '09, but we can’t guarantee that. In the mean time, we’ll just focus on getting PrandiMet out there and take an advantage of the improved compliance and the benefit of reducing dosing frequency of having those two combinations in one pill which we think will still have a broad market acceptance.

David Buck - Buckingham Research

Okay. And lastly, this time your -- on your sales force, can you just update us on the current size and where it is right now and what -- where it’s expected to be by the end of the year by the end of ’08?

Ed Schutter

Yeah I mean it’s expected to stay the same as it is now through the end of ’08, 225 in cardiology, 175 in diabetes, 175 in women’s health and 144 in pediatrics.

David Buck - Buckingham Research

719.

Ed Schutter

Right.

David Buck - Buckingham Research

Approximately, okay great thank you.

Ed Schutter

Your math is quick or mine.

David Buck - Buckingham Research

Thank you very much.

Ed Schutter

Thank you.

Operator

And our next question will come from (inaudible).

Unidentified Analyst

Hi I’m calling just on behalf of [David Moscovitz] and both of them I am sorry I needed to repeat once CloniBID you mentioned a couple of Phase III trials if you could please give me the timing on those again.

Ed Schutter

Well CloniBID done its

Unidentified Analyst

Yeah I mean Clonicel

Ed Schutter

Clonicel okay there is two Phase III trials ongoing where there is actually 3 one is versus placebo that trials completely enrolled and done it clearly enrolled. The second trial is the one that combines it with stimulus with amphetamines and methylphenidate that trial is on going and is enrolled totally enrolled and will be done by the end of the year. And then there is in the safety extension on both of those which will also be done by the end of the year.

Unidentified Analyst

Okay and the other question I had not that I know you mentioned a couple of times that the 10 milligrams dose is not available with Mylan that is available with your Sular so given that would you still be continuing the stress on your sales force that you have been now keeping up?

Ed Schutter

Yeah absolutely we’ll continue to promote Sular GEOMATRIX just as we have yeah and

Unidentified Analyst

But nothing will there be additional reinforcement or nothing like that?

Ed Schutter

No additional reinforcements no.

Unidentified Analyst

Okay thanks a lot.

Operator

Thank you we’ll move next to David Steinberg with Deutsche Bank.

David Steinberg - Deutsche Bank

Yes thanks I have a couple of questions first is that fenofibrate line you know here goes a real star amongst your bigger products growing like 30% and so TRx is year-over-year and even with the new line extension we are seeing TRx’s or NRx’s down about 6% in the last couple of months. Any -- its still a relatively small product I know Triglide only last just couple of years ago any thought on why the real slow down is it because of the sales force has been so focused on Sular or there any other reasons?

Ed Schutter

I think that’s what if you look at what transpired originally we were going to launch Fenoglide last August, September we had a delay in the product naming which then by the time we got it, it buttered up right against the Sular GEOMATRIX launch, the Prandin and everything else.

So it didn’t get the focus and that you would like to have when you are launching a product like that. We are just we’ve got some I can’t -- for competitive reasons I am not going to throw names out there but we’ve just had some significant wins with third party payers which we are going to now start focusing on it and now that we are through the Sular launch we are also going to give more focus to Fenoglide.

So we do expect that our fenofibrate line to start growing better again in the future it’s just a lack of focus. We did grow 10% on TRx this quarter-over-quarter when you look at Triglide and Fenoglide combined compared to Triglide last year.

David Steinberg - Deutsche Bank

Okay and then on Sular can you just confirm you would not be entitled to lets say generic with the file you would not be entitled to a 30 month stay simply because you did a bio availability stay is that correct?

Ed Schutter

We have a Orange Book list of I’ll let Leslie Zacks our Legal Counselor to answer that question.

Leslie Zacks

It depends on the strengthens for first to get it filed. We would not, for instance if, one was filed for the 10 milligram, you are correct, than we would not, however, we have a few Orange Book-listed patents listed patents in connection with the new Sular GEOMATRIX formulation for which we would be entitled to up to a 30 months stay.

David Steinberg - Deutsche Bank

Okay, Okay, all right thanks.

Operator

(Operator Instruction). We go now to Ken Trbovich, RBC Capital Market.

Ken Trbovich - RBC Capital Market

Thanks for taking my questions, I guess, I wanted to start with the guidance numbers again, I’ve got a little bit of confusion perhaps, as it relates to the comments around including all charges, does that mean, it also includes the $0.11 gain in the quarter from the discontinued operation?

Darrell Borne

You are talking about the revenue guidance or --?

Ken Trbovich - RBC Capital Market

No, the EPS guidance.

Darrell Borne

Yes, it has all the charges in there so there, you have --

Ken Trbovich - RBC Capital Market

So that also includes the $0.11 gain then from the second quarter?

Darrell Borne

It would have the Zebutal gain in there as well for the full year guidance, that's correct.

Ken Trbovich - RBC Capital Market

Okay

Darrell Borne

So, you have net-net, there is a $0.11 charge for the quarter.

Ken Trbovich - RBC Capital Market

Okay and then as it relates to the revenue guidance, does it include new products?

Darrell Borne

It only includes approved products it does not include the lice product. As obviously that's not an approved product. It does not include the CloniBID product either because that's not approved.

Ken Trbovich - RBC Capital Market

Okay, but prior guidance would have excluded PrandiMet this guidance includes PrandiMet because its now been approved?

Darrell Borne

Correct, but the same is important to note there too, is we will not be launching PrandiMet until the fourth quarter and it’ll be late in the fourth quarter so it will be very small amount of revenue for us this year.

Ken Trbovich - RBC Capital Market

The stocking order back in quantity?

Darrell Borne

Very small, that's right.

Ken Trbovich - RBC Capital Market

Okay and then just with regard to expenses in the same regard, does it include pre-launch expenses or launch expense associated with PrandiMet and the other product or does that not – is that in the guidance at this time?

Darrell Borne

No, that is in the guidance.

Ken Trbovich - RBC Capital Market

Okay, for PrandiMet but not for LARx or CloniBid?

Darrell Borne

There is pre-launch cost associated with the LARx of the guidance as well.

Ken Trbovich - RBC Capital Market

Okay, and then …

Darrell Borne

Carefully our expense.

Ken Trbovich - RBC Capital Market

Okay, and then on the tax rate side in the quarter it looked like your tax rate was only 28%, historically you guys have talked about the tax rate being at the low 30s, what's the tax rate that's contemplated in the guidance?

Darrell Borne

If you look at the year-to-date number, its 30.4%, and that 30.4% is what we are using going forward.

Ken Trbovich - RBC Capital Market

For the full year though?

Darrell Borne

Correct.

Ken Trbovich - RBC Capital Market

Okay. And is that primarily because of the sourcing of this product in terms of the new Sular formulation from your Irish facility?

Darrell Borne

There is the combination that is clearly one of the main elements. As we have products that are produced from our European manufacturers that obviously, helps us from a tax perspective.

Ken Trbovich - RBC Capital Market

And Nitrolingual, are other one that comes from the European manufacturer?

Darrell Borne

Triglide does as well, so does Nitrolingual Pumpspray.

Ken Trbovich - RBC Capital Market

Okay. And then just with regard to the overall direction of the business, I know, obviously, there is some expectation that you can hold the line on Sular, but I guess I want to make sure I understand, when you guys talk about holding the line, you're talking about pull our axis and the switch rate, because I guess the concern being as you try to redirect the sales force the Nitrolingual and the PrandiMet launch whether or not the guidance at this is on a flat RX number or on a flat switch rate?

Ed Schutter

When you compare to the other, PrandiMet there is a totally separate sales force. So that does not take away. As far as the mentioning of Nitrolingual Pumpspray and our ability to get focus back on that without loosing our focus on Sular, the only change here is simple and that we cover all the same targets. We will not drop any of the targets we did in the first six, seven months for Sular. We cut down on the frequency by two times a month and so three times a month something like that so we still cover the same audience.

Ken Trbovich - RBC Capital Market

Okay and then just one final question on the R&D side I think in the past I’ve asked about the Addrenex consolidation its still in the other expense line I am assuming?

Darrell Borne

The -- you’re talking about the investment on Addrenex?

Ken Trbovich - RBC Capital Market

Yeah the prorated share and their losses?

Darrell Borne

Correct that’s in the other expense area.

Ken Trbovich - RBC Capital Market

And last quarter it was a few hundred thousand comparable this quarter?

Darrell Borne

Yeah it was about 200,000 this quarter.

Ken Trbovich - RBC Capital Market

Okay and.

Darrell Borne

Basically we write down the remaining part of your investment and that’ll be a small amount of that in the future as well.

Ken Trbovich - RBC Capital Market

Okay and then just in terms of the final question overall is there any limitation to you folks further expanding the buyback once you totally utilized the current authorization is there anything about the convertible notes or things of that nature that would limit for the buyback?

Darrell Borne

There is no limitation

Ken Trbovich - RBC Capital Market

Okay but the conversion I guess I want to make sure I understand the conversion nature and the principal around that you are able to exclude the convertible notes and your share count calculation on the basis that you would use cash on redemption?

Darrell Borne

That’s a net share settlement feature and that’s correct

Ken Trbovich - RBC Capital Market

Right but the cash you have does not come anywhere near the 325 so I’m just trying to figure out if there is any adjustment going forward that from an counting perspective might be needed with the cash balance has been below the redemption level.

Darrell Borne

If you look at the -- it sounds like I mean changing the accounting rules for Cocos starting in 2009 it will give an update to everybody in the future as to what that impact will be.

Ken Trbovich - RBC Capital Market

Okay thank you appreciate it.

Darrell Borne

Thank you.

Operator

Thank you and our next question will come from Annabel Samimy with UBS.

Annabel Samimy - UBS

Quickly a follow up on the launch regarding PrandiMet what is the reason for holding of the launch until late in the fourth quarter given that it was approved in June?

Ed Schutter

Yeah its, our partner is working diligently to get the supplies available for the launch. And we are just waiting on that and all the other launch materials and that’s the reason for the delay to the fourth quarter.

Annabel Samimy - UBS

Okay great thanks.

Operator

We do have a follow up question from Ken Trbovich with RBC Capital Markets.

Ken Trbovich - RBC Capital Markets

Sorry Annabel's question reminded me on LARx is there any issue on manufacturing for that product have you already started the process?

Darrell Borne

We'd obviously won’t manufacture product until we have an approved product.

Ken Trbovich - RBC Capital Markets

Okay so this timeline from approvals to manufacturing and launch is it four to six weeks three months?

Darrell Borne

It’ll probably take about a month to make the product.

Ken Trbovich - RBC Capital Markets

Okay and so it suggests then if you guys anticipate a two months review on the re-submission suggest that you anticipate resubmitting before the end of the third quarter?

Darrell Borne

We anticipate talking to the FDA as regularly as possible and we’ll get back to everybody as soon as we know what this test is.

Ken Trbovich - RBC Capital Markets

Okay and that meeting you’ve already requested I assume?

Darrell Borne

Yes we have.

Ken Trbovich - RBC Capital Markets

Okay thanks.

Darrell Borne

Thank you.

Operator

And that would conclude our question and answer session. At this time I’d like to turn the program back to Mr. Schepers for any additional or closing remarks.

Joseph Schepers

Thank you very much. And if you have any questions feel free to give me a call. Thank you for your participation.

Operator

Thank you everyone for your participation in today's conference call. And you may disconnect at this time.

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